Companies do have a reason to be worried. Part of the failure of markets is when there is a decrease in competition. The convenience that these large companies provide might keep future clients from looking at cheaper, single product companies. European regulators were smart to take so long to approve the merger, since consumers may get hurt. The companies must also be careful of becoming too big. When a company grows large, they need to do more planning. Too much planning leads to a company being inflexible. In a market system, being inflexible leads to a company's downfall.
Wednesday, January 27, 2010
With Sun, Oracle Aims at Giants
Oracle was recently allowed to buy Sun Microsystems after months of scrutiny by European regulators. With this acquisition, Oracle is now competing with Dell, Hewlett-Packard, I.B.M., and Cisco Systems to provide hardware and software to corporate clients. Oracle and its competitors can provide all elements, like databases and servers, that companies need and install all the elements together. Businesses would have to go to multiple vendors in order to obtain all the parts without working through one of these companies. Oracle used to only provide databases in the past. Potential clients like the idea of one-stop shopping, but fear that with only a few big companies to choose from instead of smaller companies providing a single component, price might rise.
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I felt that this article which relates the fear of many consumers of a firm's increasing market power was an interesting juxtaposition of the argument made by Donald Bourdeaux(podcast).He states that historically, it is rarely the case when companies merge or become large do they raise prices which resulting in consumer welfare loss. This is because raising prices which would allow them to increase profits, increases the incentive for competition to try break into the market. Thus firms rarely do that. It is thus an interesting concept which challenges our traditional notion of market power.
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